by This might surprise you: In the majority of U.S. states – 29 out of 50 – it’s legal for companies to discriminate against their lesbian, gay, bisexual, and transgender (LGBT) employees. But this probably won’t: Research by Credit Suisse suggests that companies that choose to do so – whether subtly or overtly – are likely doing a disservice both to their business and to their shareholders. Over the past six years, companies that created welcoming environments for LGBT employees handily outperformed the broader market. Credit Suisse analysts created a basket of 270 companies that have openly LGBT leaders and senior management, employees who are members of local LGBT business networks, or that have been voted top employers by activist groups such as Stonewall or DiversityInc. While almost every Fortune 500 company has a non-discrimination policy, Credit Suisse’s criteria required strong signals of genuine inclusion, rather than mere tolerance. The LGBT 270 index included companies in all sectors, but information technology, consumer staples, and financial firms made up some 60 percent of the index by market cap. The index outperformed the MSCI All Country World Index by 3 percentage points a year over the past six years, producing average annual returns of 6.4 percent. Also, companies in the LGBT 270 fell just 5.1 percent over the last 12 months, compared to a 6.
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Ashley Kindergan considers the following as important: Credit Suisse, diversity, equality, Investing: Features, LGBT, LGBT 270
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This might surprise you: In the majority of U.S. states – 29 out of 50 – it’s legal for companies to discriminate against their lesbian, gay, bisexual, and transgender (LGBT) employees. But this probably won’t: Research by Credit Suisse suggests that companies that choose to do so – whether subtly or overtly – are likely doing a disservice both to their business and to their shareholders. Over the past six years, companies that created welcoming environments for LGBT employees handily outperformed the broader market.
Credit Suisse analysts created a basket of 270 companies that have openly LGBT leaders and senior management, employees who are members of local LGBT business networks, or that have been voted top employers by activist groups such as Stonewall or DiversityInc. While almost every Fortune 500 company has a non-discrimination policy, Credit Suisse’s criteria required strong signals of genuine inclusion, rather than mere tolerance.
The LGBT 270 index included companies in all sectors, but information technology, consumer staples, and financial firms made up some 60 percent of the index by market cap. The index outperformed the MSCI All Country World Index by 3 percentage points a year over the past six years, producing average annual returns of 6.4 percent. Also, companies in the LGBT 270 fell just 5.1 percent over the last 12 months, compared to a 6.9 percent drop for the MSCI ACWI.
LGBT-friendly companies outperformed on other measures as well. The LGBT 270 produced average returns on equity of 13 percent over the study period, compared to 11.6 percent for the MSCI ACWI, outperforming every year, though returns were more volatile. Cash flow returns on investment (and cash flow returns on equity for financial firms) were 21 percent higher for the LGBT 270 than for the broader index. The companies in the index also produced more economic profit, or returns above the cost of capital. What these results suggest, Credit Suisse says, is that companies that are more inclusive may also be better managed.
There are, of course, other hypotheses. By actively welcoming LGBT employees, firms can appeal to a wider pool of talented people. After all, the LGBT community is better educated than the overall population – 48 percent of same-sex couples have college degrees, compared to 34 percent for opposite-sex couples. LGBT-friendliness may also help in recruiting Millennials. The proportion of Americans between the ages of 18 and 35 who identify as LGBT is nearly double that of the general population, 7 percent to 3.8 percent. Of course, it’s not just LGBT employees who appreciate a workplace that prioritizes equality. Seventy-two percent of so-called straight allies – people who don’t identify as lesbian, gay, bisexual, or transgender, but who support LGBT rights – say they are more likely to accept a job at a company that supports equal opportunities for gay, bisexual, and transgender employees.
Creating an environment where employees can feel comfortable being open about their sexual orientation or gender identity seems to play a key role in employee retention and productivity as well. Forty-one percent of LGBT workers and 72 percent of executives are not out at work, and those closeted employees are apparently 73 percent more likely than openly LGBT employees to leave their jobs within a year. Not only that, 24 percent of lesbians, 30 percent of gay men, 40 percent of bisexuals, and 55 percent of transgender employees said in a survey that they believed coming out could impact future promotions.
There’s one other possible explanation for the outperformance of LGBT-friendly companies – LGBT shoppers. These consumers account for an estimated $3.7 trillion in purchasing power globally – as much as Germany’s GDP in 2015. Nearly one in four LGBT consumers say they have switched products or services after finding out another company was more supportive of the community, and 71 percent of those people said they would keep buying the brand even if it were cheaper or more convenient to buy something else.